In a paper released this week, Treasury has laid out the rationale for the FOFA amendments which were contained in the Coalition's Dissenting Report to the February 2009 Ripoll Inquiry.
Treasury noted that the current government made an election commitment to reduce the regulatory burden on the financial services industry.
“The election commitment was a response to concerns that the current FOFA requirements have added unnecessary red tape and imposed significant costs on businesses; costs that are likely to be passed onto customers,” said the paper.
Treasury anticipated implementation savings of $90 million as a result of the amendments to FOFA, along with $190 million in ongoing cost savings.
“Consultation on this options-stage regulation impact statement will enable these cost estimates to be further refined,” said the paper.
The changes to FOFA include the removal of the opt-in requirements, the removal of the final 'catch all' provision in the best interests duty, the exemption of general advice from conflicted remuneration, the restriction of fee disclosure statements to new clients, and changes to grandfathering.
The paper noted that consumer groups are “unlikely” to support the amendments as “they believe that any changes to FOFA will compromise consumer protections”.
“Despite these concerns, many of the measures which were originally introduced by FOFA will remain, including an amended best interests duty and the ban on conflicted remuneration,” said Treasury.
“The proposed amendments are deregulatory and will represent a move towards a more efficient system whilst maintaining the core consumer protections introduced by FOFA,” said the paper.
Focusing on the grandfathering changes, Treasury argued they would be beneficial for the industry because they will allow advisers to move between licensees more freely, fostering competition.
“Whilst the amendments would allow grandfathered benefits to continue for a longer period of time, it is anticipated that industry would transition to fee-for-service model as advisers cannot receive conflicted remuneration on arrangements entered into with new clients, and existing clients are likely to be transferred into new products/arrangements over time,” said the paper.
Treasury confirmed that the rights to grandfathered benefits can be transferred when a practice is sold; advisers can continue to receive grandfathered benefits when they transition from employed to self-employed within the same licensee; and that grandfathering will not cease when a client switches from a superannuation product to a pension product within a multi-product offering.
